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Hot Off the Presses! CMS Issues Final Overpayment Regulations

On Friday, February 12, 2016, the Centers for Medicare and Medicaid Services (CMS) issued the final overpayment reporting and refunding rule for Medicare Parts A and B overpayments (Final Rule). This Final Rule adopts federal regulations to implement Section 6402(a) of the Affordable Care Act (ACA) enacted in March 2010 that requires the identification, reporting and refunding of certain overpayments from the Medicare and Medicaid programs (the “Overpayment Law”). CMS had previously issued a proposed rule in February 2012 containing regulations to implement the Overpayment Law, which raised several questions and compliance challenges by physicians and other health care providers.

The Overpayment Law in Section 6402(a) of the ACA requires a person who has received a Medicare or Medicaid overpayment to report and return the overpayment and to notify the Federal Medicare program, the state, and any “intermediary, carrier or contractor to whom the overpayment was returned in writing of the reason for the overpayment.” The Overpayment Law also requires an overpayment to be reported and returned within 60 days after the date the overpayment is identified, or the date any corresponding cost report is due, if applicable.

An important aspect of the Overpayment Law is that any overpayment improperly retained by a person after the deadline for reporting and returning an overpayment is an obligation for purposes of False Claims Act (FCA) liability. As a result, physicians and other health care providers could be subject to potential FCA and Civil Monetary Penalties (CMP) liability for failing to properly report and return Medicare Parts A and B overpayments.

Key Concepts Addressed in Overpayment Final Rule

The following are some of the key concepts and compliance requirements addressed in the Overpayment Final Rule by CMS:

Only Applies to Medicare Parts A and B

The Overpayment Final Rule only applies to Medicare Parts A and B, and does not address Medicaid overpayments. The Overpayment Law applies to all Medicare and Medicaid overpayments, and CMS has separately adopted regulations for overpayments of Medicare Parts C and D payments. CMS also emphasized that the Overpayment Law did not require the adoption of implementing regulations in the Final Rule to become effective, and that prior to the issuance of the Final Rule, providers could face potential FCA and CMP liability for failing to report and return Medicare Parts A and B overpayments.

Identification of an Overpayment

In the Final Rule, CMS addressed several key questions related to compliance with the Overpayment Law’s reporting and refunding requirements, including when an overpayment is identified to trigger the beginning of the 60-day time period within which to return any overpayments. CMS defines “identification” in the Final Rule so that an overpayment is not identified until it has been quantified (unless a provider fails to conduct reasonable diligence).

The Final Rule clarifies that a provider is entitled to the opportunity to conduct the auditing work necessary to quantify the overpayment amount before the 60-day clock begins. Specifically, CMS stated that the 60-day time period begins when either the reasonable diligence is completed or on the day the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment. CMS commented that a provider may conduct a probe sample to better understand the extent of a potential issue and evaluate whether further efforts, such as an extrapolation, may be appropriate.

CMS also noted that the provider or supplier should not report and return overpayments on specific claims from the probe sample until the full overpayment is identified. Physicians should keep in mind that the OIG and other agencies have historically taken the position that overpayments can be identified prior to quantification of a total overpayment amount based on a particular issue.

Must Conduct Reasonably Diligent Investigations Within 6 Months

Comments by CMS in the Overpayment Final Rule clearly indicate that providers cannot avoid liability by ignoring indications of potential Medicare Parts A and B overpayments. In other words, the “ostrich defense” is no longer an option. In the Final Rule, CMS indicated that a person has identified an overpayment “if the person fails to exercise reasonable diligence and the person in fact received an overpayment.” CMS indicated that reasonable diligence “includes both proactive compliance activities conducted in good faith by qualified individuals to monitor for the receipt of overpayments and investigations conducted in good faith and in a timely manner by qualified individuals in response to obtaining credible information of a potential overpayment.”

In addition, CMS noted that providers that undertake no or minimal compliance activities to monitor the accuracy and appropriateness of a provider’s Medicare claims would expose a provider to liability under the identification standard in the Final Rule based on the failure to exercise reasonable diligence if the provider received an overpayment. In the Final Rule, CMS established a 6-month benchmark for reasonably diligent investigations. CMS commented that absent “extraordinary circumstances,” a timely, good faith investigation of credible information will last at most six months from the receipt of credible information. Thus, a provider will generally have no more than eight months total to report and return Medicare Parts A and B overpayments (6 months for investigation and 2 months or 60 days within which to report and return any overpayments).

Definition of an Overpayment

The Overpayment Law defines an “overpayment” as “any funds that a person receives or retains under the Medicare or Medicaid programs to which the person, after applicable reconciliation, is not entitled.” CMS addressed concerns by providers in the Final Rule to the expansiveness of this definition by emphasizing the number of ways in which overpayments may be reported and returned. An important comment by CMS was that sufficient documentation and medical necessity are “longstanding and fundamental prerequisites to Medicare coverage and payment.” This was in response to public comments that these are areas where the concept of an “overpayment” is less clear.

Six Year Lookback Period for Overpayments

CMS also addressed questions regarding the lookback period that providers should use when conducting internal reviews. In the Final Rule, CMS provided that Medicare Parts A and B overpayments must be reported and returned “only if a person identifies the overpayment within six years of the date the overpayment was received.” CMS had originally proposed a ten-year lookback period for Medicare Parts A and B overpayments.

Next month, this article will explore what the comments and clarifications by CMS in the Overpayment Final Rule mean for physician group practices.